Home > Tax Issues > 5 Tips to Cut Your Inheritance Tax Bill

5 Tips to Cut Your Inheritance Tax Bill

By: J.A.J Aaronson - Updated: 13 Sep 2015 | comments*Discuss
Iht Inheritance Tax Cut Bill Reduce

Inheritance Tax (IHT) is one of the most resented forms of taxation in the UK. Originally introduced with the intention of splitting up large estates, IHT has begun to affect more and more people as property prices have risen. Even once the ongoing reduction in house prices has been taken into account, as many as 10 million households may now be subject to Inheritance Tax.

The burden of IHT is frequently avoidable – and even when it cannot be eliminated altogether, it is always possible to mitigate it to some extent. With a little pro-active planning it should be possible to cut your inheritance tax bill drastically. Try following these five steps to give yourself a head start.

1. Make a Plan

The most important step that you can take to reduce your IHT bill is to make a comprehensive plan for the distribution of your assets. This process should begin with a valuation of those assets; look at everything you own, including things like ISAs and PEPs. Add their value together, and deduct from this any outstanding debts. If this figure exceeds £325,000 your estate will be subject to inheritance tax.

Consider who you wish to pass assets to, and which assets you would like to disburse where. Having done this, it may become clear that there are some parts of your estate, whether they are physical items or cash, that can be passed on immediately without any negative impact on your lifestyle. This plan should be the cornerstone of your efforts to reduce your IHT bill.

2. Distance Yourself From Your Assets

IHT is only charged on assets that are part of your estate upon your death. There are numerous ways in which you can remove assets from your possession, thereby reducing your exposure to the tax. One of the most popular such methods is the establishment of a trust. Many people who have life insurance or a death in service arrangement with their employer will choose to have this paid directly to a separate beneficiary. This is vital, as it will mean that the money bypasses your estate and therefore the tax. You can also use trusts to shield other assets, such as cash or shares. This can be a fairly complex process, however; you may wish to read the relevant articles elsewhere on this site.

3. Use Your Allowances

Gifts up to a total annual value of £3,000 are exempt from inheritance tax, on the condition that the giver survives for a further seven years after the gift is made. This provides a useful means by which individuals can give away assets that would otherwise be distributed on their death, while seeing the benefit that they bring the receiver.

4. Make a Will

This is as important a step as you can take. If you fail to make a will there is no guarantee that your assets will be disbursed in the manner in which you would like, and this frequently means a higher tax bill for your beneficiaries. Consult with a solicitor, who will be able to advise on your individual circumstances and word the document accordingly.

5. Spend It!

After all, it is your money. Make sure that you enjoy it while you can. IHT will not, of course, affect the individual whose estate is being disbursed. However, it can have a significant impact on the financial benefits received by your dependants. A little planning can go a long way to minimising this impact.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
none - Your Question:
I would like my brother who is a USA citizen to be one of the executors. He will be in charge of my funeral arrangements and the burial of my ashes in the UK of which I am a citizen. He is also my beneficiary. How does he go about getting probate for my estate? Does he need to open a UK bank account for this?Thanks in anticipation.

Our Response:
He can be an executor but you may want to consider a UK alternative as well. It can be a lengthy process so it would be a big committment for someone who is not UK based. An executor often sets up a bank account specifically for the purposes of adminstering the estates, so yes he'd have to set up a UK bank account.
TheWillExpert - 14-Sep-15 @ 1:42 PM
I would like my brother who is a USA citizen to be one of the executors. He will be in charge of my funeral arrangements and the burial of my ashes in the UK of which I am a citizen. He is also my beneficiary. How does he go about getting probate for my estate? Does he need to open a UK bank account for this? Thanks in anticipation.
none - 13-Sep-15 @ 7:17 PM
Share Your Story, Join the Discussion or Seek Advice...
(never shown)
(never shown)
(never shown)
(never shown)
Enter word:
Latest Comments
  • Lisa
    Re: How Legally Binding is a Will?
    My gran had will and she had sign by 2 witnesses and my grandad was there my gran and grandad now sadly passed and a can't find…
    18 September 2020
  • Ionnikins
    Re: Keeping Your Will Up-to-Date
    My wife and I have mirror wills. We have agreed that on first death the survivor will vary the will in order to pass on to our…
    29 August 2020
    Re: Preparing Your Will in Scotland
    My father changed his will 4 months before he passed away aged 82, he was unable to sign his will, he only mentioned 2…
    12 May 2020
  • scot20
    Re: Scottish Rights of Succession
    In a simple will, no property on a little savings, is it necessary to have a whole section on trusts as in STEP? Everything going…
    20 April 2020
  • suspicious
    Re: Preparing Your Will in Scotland
    Scotland - The main beneficiary of a will made by my uncle ( suffering from dementia) arranged for a completely new Will to be…
    8 April 2020
  • Someone
    Re: Dealing With Intestacy
    Hi, I am trying to get prepared for when my time comes when my mother passes on. There is a will and I am the sole person who will…
    2 December 2019
  • Tina
    Re: Preparing Your Will in Scotland
    My husband signed will at the later date than will itself is dated. On the last page is only his signature,no printed name and…
    23 November 2019
  • Robin
    Re: Are Verbal Changes to a Will Valid?
    My Mom passed away she had a will made in 2012 though since has wanted to make changes she told me and my sistee (whom is…
    27 July 2019
  • Ray Delta
    Re: Debt After Death
    My partner passed away in February 2019 leaving no estate assets or monies, she had a vehicle on a lease hire agreement with an £8,800. now owing.…
    7 July 2019
  • Geoff
    Re: Divorce and Revoking a Will
    Three years ago when my wife, now deceased, was in a nursing home I had a will written that left everything to my wife's great…
    4 July 2019